SARFAESI Act Applicable To Cooperative Banks

IN THE SUPREME COURT OF INDIA, PANDURANG GANPATI CHAUGULE vs VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED, 

Following questions arise for consideration:

(1) Whether 'co­operative banks', which are co­operative societies also, are governed by Entry 45 of List I or by Entry 32 of List II of the Seventh Schedule of the Constitution of India, and to what extent?

(2) Whether ‘banking company’ as defined in Section 5(c) of the BR Act, 1949 covers co­operative banks registered under the State Co­operative Laws and also multi­State co­operative societies?

(3)(a) Whether co­operative banks both at the State level and multi­State level are 'banks' for applicability of the SARFAESI Act?

(3)(b) Whether provisions of Section 2(c) (iva) of the SARFAESI Act on account of inclusion of multi­State co­operative banks and notification dated 28.1.2003 notifying cooperative banks in the State are ultra vires?

THE SUPREME COURT decided that the co­operative banks under the State legislation and multi­ State co­operative banks are 'banks' under section 2(1)(c) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The bench unanimously held that the Parliament had the legislative competence to bring cooperative banks under the ambit of SARFAESI Act.

It thus rejected the argument that 2013 amendment to the SARFAESI Act adding 'mutli-state cooperative bank' in Section 2(1)(c)(iva) was a "colourable exercise of power". It also upheld the 2003 notification issued under the Banking Regulation Act 1949 by which co­operative bank was brought within the class of banks entitled to seek recourse to the provisions of the SARFAESI Act.